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What is asset accumulation method of company valuation? Please compare asset accumulation, market capitalisation, book value,...

What is asset accumulation method of company valuation?

Please compare asset accumulation, market capitalisation, book value, and future earnings methods.

Solutions

Expert Solution

Under Asset Accumulation method, the value of business = current fair value of all assets - current fair value of all liabilities.

Under this method:

  • assets also includes any intangible assets.
  • liabilites also includes any contingent laibilities

Market Capitalization method: This method can be used only for companies whose stock are traded in the market. As per this method, Value of Company = Market price per share * Number of shares outstanding.

Book Value method: Instead of usind the fair value of assets and liabilities, this method uses the book values. Thus, value of company = Book value of all the assets - book value of all the liabilities. Thus, this method ignores any unrecorded intangibles or contingent liabilities.

Future earnings methods: This method employes time value of money concept. Under this method, the future earnings of the company attributable to stockholders is estimated, then the future terminal value of the company is estimated and using the appropriate discount rate(based on riskiness of the company), these estimated future earnings and terminal value is discounted to calculate the present value of the Company.

jeff jeffy answered 2 years ago
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